Greenhouse gases (GHGs) are widely recognized as a primary cause of climate change, with carbon emissions being the largest contributor, accounting for 79% of total greenhouse emissions. Other significant greenhouse gases include methane (11.5%), nitrous oxide (6.2%), and fluorinated gases (3.0%).
To address and measure GHG emissions from private and public operations, the Greenhouse Gas Protocol (GHG Protocol) serves as the governing body, establishing standards for classification and measurement. The GHG Protocol has defined three scopes of emissions: Scope 1, 2, and 3. These guidelines help identify which parts of a value chain are responsible for emissions during a project or process's life cycle.
Scope 1 emissions refer to direct emissions from sources owned or controlled by an organization. Examples include emissions from the combustion of fossil fuels in boilers or vehicles. Scope 2 emissions are indirect emissions from the generation of purchased energy, such as electricity consumed by an organization. Scope 3 emissions encompass indirect emissions from sources not owned or controlled by the organization, such as emissions from suppliers, customers, or transportation of products.
Measuring and mitigating Scope 1, 2, and 3 emissions are crucial for combating climate change and reducing the environmental impact of human activities. As sustainability gains increasing priority among consumers, investors, and regulators, organizations that proactively reduce their emissions gain a competitive advantage in the long run. Reporting emissions to consumers and investors can also enhance a firm's reputation and ensure regulatory compliance. By investing in renewable energy, improving energy efficiency, and optimizing supply chains, firms can reduce emissions while accessing capital and driving technological innovation.
The GHG Protocol's standards are widely recognized and used, with over 90% of Fortune 500 firms relying on them for clarity on corporate accounting and reporting. While Scope 1 and 2 reporting are required for security issuers, Scope 3 reporting is currently voluntary but provides a significant opportunity for firms to differentiate themselves from others.
Scope 1 emissions encompass direct emissions produced by an organization. This includes emissions from stationary combustion sources like coal power plants, as well as mobile combustion sources such as transportation owned or leased by the organization. Scope 2 emissions comprise indirect emissions resulting from third-party electricity production and the organization's consumption. This scope also covers emissions from purchased electricity and direct fugitive emissions like refrigeration, air conditioning, fire suppression, and industrial gases. Scope 3 emissions include all other indirect emissions associated with a firm's activities that do not fall within Scope 1 or 2. This includes emissions from the production, transportation, or disposal of raw materials or goods used by the organization.
Understanding the three scopes of emissions is critical for identifying effective strategies to reduce GHG emissions. It allows organizations to track and measure emissions, facilitating the transition to cleaner energy sources. Measuring emissions in all three scopes helps organizations comply with international standards and laws, manage risks associated with climate change impacts, and take advantage of opportunities in the clean energy industry.
Reducing emissions in Scope 1 can be achieved by transitioning to clean energy solutions at the property level, adopting electric vehicles, or using renewable fuels for transportation fleets. Energy-efficient practices like LED lighting and efficient HVAC systems also contribute to emission reduction. Scope 2 emissions can be addressed through onsite improvements like rooftop solar or microgrids, as well as purchasing renewable energy certificates, carbon offsets, or entering into virtual power agreements. Collaborating with suppliers and stakeholders is crucial for tackling Scope 3 emissions, as these emissions are harder to track due to resource limitations, lack of incentives, and coordination challenges within the value chain.
Taking a comprehensive approach that considers emissions across all three scopes is essential for companies aiming to reduce their carbon footprint and build sustainable business practices. In doing so, companies can play a vital role in mitigating climate change and fostering a more sustainable future.
By actively measuring emissions and implementing strategies to reduce them, companies can achieve cost savings, enhance their reputation, and ensure regulatory compliance. Organizations that are willing to collaborate within their value chain and estimate Scope 3 emissions gain a competitive advantage. Access to credit insurance and other financial tools can help facilitate financing for energy-efficient projects. Taking these steps not only accelerates climate solutions but also positions organizations to benefit from cost savings and opportunities in the renewable energy market.
Driving sustainability and gaining a competitive edge requires a comprehensive approach to reducing Scope 1, 2, and 3 emissions. By measuring and mitigating emissions across all three scopes, firms can address climate change, improve their environmental impact, and position themselves as leaders in the transition to a more sustainable future.
Read Energetic’s full whitepaper, Driving Sustainability and Gaining a Competitive Edge: A Comprehensive Approach to Scope 1, 2, and 3 Emissions Reduction, researched and written by Elizabeth Barnes and Nathan Maggiotto, to learn more about how firms can benefit from using the Scope 1, 2, 3 framework to track emissions.
Have questions on how Energetic Insurance can help you implement a programmatic partnership to deploy energy efficiency and/or renewables across commercial real estate sites? Contact us here.
This article does not constitute and is not intended by Energetic Insurance to constitute financial advice or a solicitation for any insurance business.